Flexible Budget Variance vs Volume Variance in Helthcare

Budget is the estimation made by a business at the beginning of the financial period. The budget prepared at the beginning will not reflect the exact amount of resources that the business will incur for the entire financial period. The budget prepared at the beginning might be less or more as compared with the actual resources, the business will spend for the whole year. As the year begins, the business will not know the resources needed for the entire financial period (Davis & Davis, 2011).

The business if forced to prepare a static budget, which contains the estimates of resources anticipated to spend, which covers a specific year of either one year or six months. When the year ends, the business will prepare another budget, which will show the exact amount of resources used for the entire fiscal year. The budget prepared at the end of the year is the flexible budget. Comparing the static and the flexible budget will show variance as either of them will be less or more as the year-ends.

In this essay, I will focus on the difference between flexible budget variance and volume variance. From the provided case study on medical practice budget, the conventional approach has been adopted. In this case, it does not operate on the previous budget figures like other businesses. The flexible budget shows the differing levels of revenues and expenses based on the amount of sales activities that occurred at a specified period.

The actual revenues or actual units sold at a given period are recorded flexible budget model while the levels of budgeted expenses are generated automatically in the model. Flexible budget variance is any difference recorded between the results posted actual results and flexible budget model (Balakrishnan, Sivaramakrishnan, & Sprinkle, 2008). When the actual revenues are recorded in the flexible budget model, the variance arising will be between actual expenses and budgeted expenses only without the revenues.

Total flexible budget variance should smaller when compared with the total variance that is expected to be posted if the fixed budget model would be used at the beginning. It is because the revenue level or the unit volume in the flexible budget model is adjusted to suit the actual results. When an organization records a higher budget variance, it shows that the formulas used in the budget model need to be adjusted such that it can accurately show actual results.

The volume variance is the difference between the actual quantity consumes or sold the amount budgeted in the business expected to be consumed or sold. The price per unit multiplies the result. The volume variance achieved will be used as a tool to determine whether the business has generated the amount of unit volume that had been budgeted (Balakrishnan, Sivaramakrishnan, & Sprinkle, 2008). In case the variance calculated is related to the sale of goods, the variance will be referred to as sale volume variance with a different formula.

The formula will be actual quantity sold minus the budgeted quantity sold multiplied by the budgeted price. Any volume variance calculated involves the difference between the unit volumes and multiplied by the standard cost or price. The costs of products.